How Collaboration Helps Supply Chain Finance Break Out Of Silos

Bank-FinTech collaboration is a growing phenomenon helping traditional financial institutions embrace the innovation of FinTech competitors without having to develop their own internal solutions.

While the trend targets a multitude of different areas of financial services, B2B finserv is enjoying a surge in bank-FinTech collaboration as more FinTechs step into the market to tackle key financial headaches for small businesses and large corporates alike — opening the doors to opportunity for their bank providers, too.

In today’s complex global trading ecosystem, friction can be found at every turn. The same goes for supply chain finance processes, an area of trade finance upon which both buyers and suppliers rely to finance and facilitate their deals.

But with so many parties involved in a single transaction — including buyers, suppliers, financiers, logistics firms and beyond — there is ample opportunity for inefficiencies, error and even fraud.

Global trade is a game of collaboration, so it’s perhaps unsurprising that collaboration has become a cornerstone of facilitating supply chain financing — an area of trade finance in which the corporate buyer initiates a way for suppliers to access financing against unpaid receivables.

In the last few weeks alone, several high-profile tie-ups have demonstrated the financial services industry’s interest in bank-FinTech collaboration to address friction in trade and supply chain finance.

Recently announced partnerships include: Standard Chartered and Traydstream; ADCB and dltledgers; Saudi British Bank and Demica; and HSBC and we.trade.

In Australia, supply chain finance FinTech Octet recently announced its own bank collaborator in Bank of Queensland. According to Octet Chief Executive Officer Clive Isenberg, the supply chain financing space offers clear value propositions for both banks and FinTechs, considering the multiple areas of these transactions that need improvement.

Whereas many bank-FinTech partnerships are straightforward, involving the integration of a FinTech’s product under the service offering of a bank, supply chain finance “is far more broad-reaching and services the full gamut of working capital finance,” Isenberg told PYMNTS. Solution providers have to address the needs of many parties and processes, including a buyer’s procurement process, and a supplier’s cash flow management needs.

Among the largest challenges of global trade — and of financing that trade — is the need for all parties involved to be on the same page. What bank-FinTech collaborations can offer, Isenberg explained, is a platform on which those parties communicate and share data, enabling everyone to be on the same page to more efficiently finance receivables — rather than individual financial service providers engaging separately with those parties.

In Australia, he pointed to the particularly large opportunity in connecting small and medium-sized businesses (SMBs) with more sophisticated supply chain finance tools, as SMBs have historically been underserved in this space.

“Most small and mid-size businesses are unable to access the supply chain financing tools and technology often afforded to larger businesses,” he said, adding that also unique to Australia’s supply chain financing market is the opportunity associated with the nation’s trade relationships across the Asia Pacific region.

But many of the challenges of trade finance overall, and supply chain finance in particular, are felt the world over. Continued reliance on paper and manual processes, coupled with the tendency for trade and financing interactions to occur in silos, has led to what the Asian Development Bank estimates to be a $1.5 trillion gap in available trade finance — a figure disproportionately impacting smaller companies in the global market.

As Isenberg noted, such a massive gap cannot be filled singlehandedly — not by a single bank or FinTech, and not by a single trade finance product or technology.

“While supply chain finance is a key tool to close this trade gap, it cannot do it alone as it relies upon transactions that involve larger buyers,” he said, pointing to trade finance and receivables finance as other products that must work “in unison” to the supply chain finance space.

“The combined impact of all of these funding sources make a material difference to the global trade finance gap,” he added. “Assisting clients in developing a seamless management and financing experience across the entire supply chain will nurture demand for these innovative financing options.”